DDIT, Circle-3 (1) , New Delhi Versus Mitsubishi Motors Corporation

2016 (5) TMI 110 - ITAT DELHI

Entitlement to the benefit of proviso to section 112(1) on sale of the equity shares - Rate application - assessee had applied tax rate of 10% in the terms of the proviso to section 112(1) but the AO has applied tax rate of 20% as the proviso below section 112(1)(c) was not applicable in the case of non-residents - Held that:- It is not the case of the Revenue that the assessee did not compute capital gain in terms of the first proviso. Second proviso, which is material for our purpose, provides .....

has arisen to a non-resident from transfer of shares in an Indian company, it is clear that the mandate of second proviso becomes inapplicable and the case gets restricted in the first proviso to section 48 alone.

Again reverting to the main issue of the applicability or otherwise of the proviso below section 112(1)(c), we find that tax is payable in respect of income arising from transfer of a long-term capital asset which is before giving effect to the provisions of second proviso .....

ection 112 and proviso to section 112(1) does not state that an assessee, who avails benefit of the first proviso to section 48, is not entitled to the benefit of lower rate of tax at 10%. As the view taken by the DRP is in consonance with that of the Hon’ble High Court, we ergo countenance the same. - Decided in favour of assessee - ITA No.411/Del/2014 - Dated:- 28-4-2016 - SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM For The Assessee : None For The Department : Shri Amrendra Kumar, CIT, DR ORDER .....

ax rate of 20% as the proviso below section 112(1)(c) was not applicable in the case of non-residents. 2. Whether on the facts stated and in laws the Hon ble DRP has erred in holding the assessee entitled to the benefit of proviso to section 112(1) of the Act on sale of the equity shares in question. 3. Briefly stated, the facts of the case are that the assessee is a company incorporated under the laws of Japan with its head office in Tokyo. It is engaged in the business of development, design, .....

Such capital gains arose from the sale of shares of Eicher Motors Ltd. to Eicher Motors Ltd. (as a part of buy back of shares), Mr. Sidharth Lal, Mr. Simran Lal and Mrs. Tara Lal for a consideration of ₹ 27.96 crore. Cost of acquisition of these shares in Indian currency worked out at ₹ 9.94 crore, yielding long-term capital gain of ₹ 18.01 crore. Since the shares were acquired and held for more than one year, the assessee offered income under this head @ 10% in terms of provi .....

he ratio of this judgment, the DRP accepted the assessee s claim. The AO in the final order gave effect to the direction of the DRP in applying tax rate of 10%. The instant appeal has been filed by the Revenue on such application of 10% tax rate as against its claim of correct tax rate of 20%. 4. We have heard the ld. DR and perused the relevant material on record. There is no appearance from the side of the assessee despite notice. The short controversy before us is to decide the rate at which .....

ssessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income shall be the aggregate of,- (a)…. (b)…. (c) in the case of a non-resident (not being a company) or a foreign company,- (i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total inc .....

p;…………….. 5. The assessee, a foreign company, being a resident of Japan, satisfies the condition of applicability of special rate as given under clause (c). Further the capital gain has arisen from the transfer of shares, which are long term capital asset of the assessee, which fulfills the condition set out in the opening part of sub-section (1). As these pre-requisites are satisfied, sub-clause (ii) of section 112(1)(c) comes into play, which provides that th .....

the assessee. When we read clause c(ii) in juxtaposition to the proviso to section 112(1), the position which emerges is that if a case falls under the proviso, then, the tax rate will be 10% and in the otherwise situation, the command of section 112(1)(c)(ii) will apply and accordingly tax at the rate of 20% shall be charged. Whereas the claim of the assessee ab initio has been that it is covered by the proviso, the AO has negated such a claim and put the case under clause c(ii) of section 112( .....

ter giving effect to the provisions of 2nd proviso to section 48. For that purpose, we need to have a look at the relevant parts of section 48, which are as under : - Mode of computation. 48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with su .....

he capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company : Provided further that where long-term c .....

……………….. 7. Section 48 contains the mode of computation of income under the head Capital gains by providing that the cost of acquisition of the asset and the cost of any improvement thereto along with the expenditure incurred wholly and exclusively in connection with such transfer shall be deducted from the full value of the consideration for determining the amount of capital gain. First proviso to section 48 states that in the case of an assessee who is .....